Election 2020 Issues: Tax Reform

If you were President, and had a House majority and Senate supermajority on your side, how would you reform our nation’s system of taxes, and if cost is involved, how you pay for it.

For a summary of the issue, read below:

Upon enactment of the 16th Amendment, the United States began collecting federal taxes on income, after having previously relied mostly on tariffs and excise taxes for government revenue. The marginal tax rate (the percentage of income that is taxed after deductions and exemptions) was initially under 10% for everyone, but quickly rose above 70% for the highest earners to fund World War I, taking over as the major source of revenue for the government, which has remained so ever since.

While top marginal tax rates briefly fell to approximately 25% during the 1920s, a subsequent effort by President Franklin Roosevelt to combat economic inequality and fund the New Deal as well as World War II brought the marginal rate sharply above 90% for top earners and 20% for bottom earners and remained there until the 1960s, kick starting the US with a steady stream of tax revenue that has remained at 15-20% of GDP through today.

The top rate was reduced back down to 28% under President Reagan, who also reduced the bottom rate by 5-10%. However, Reagan countered a lot of this reduction via the elimination of tax deductions and loopholes, such as Social Security annuities, as well as via added excise taxes on certain goods. The top rate later increased to 39.6% under President Clinton, reduced to 35% under President George W Bush, increased back to 39.6% under President Obama, and reduced to 37% under President Trump, where it stands today. The bottom rate currently stands at approximately 10%.

Long term capital gains taxes are taxed at a lower rate than top earner income taxes, at 0-20%. Estate (inheritance) tax is at 40%, but this is only on excess above $11.4 million, a figure that was drastically increased by 2017 legislation.

Corporate taxes saw a sharp reduction from 35% to 21% in the same 2017 legislation, despite ever increasing corporate profit margins. Corporations also have many loopholes and deductions at their disposal that are not as readily available to average taxpayers to further reduce their federal taxes, such as shifting profits to foreign subsidies, front-loading expenses, and giving free stock options to employees. As a result, approximately 100, or 20%, of Fortune 500 companies (the top 500 largest corporations in the US) were able to reduce their corporate taxes to $0 for one year or more in the past decade. While individuals and couples can also take certain deductions and credits, 90% of all these filers find the standard deduction (at $12,200, $24,400 for married couples) to be more advantageous.

Payroll taxes to fund Social Security were introduced in 1937, which, with the exception of the self-employed, are calculated and deducted automatically from employee paychecks and matched by employers rather than also filed separately. The percentage was initially 2% (split between employer and employee) and gradually rose to 12.4% today. Payroll taxes for Medicare were also established in the 1960s, and is at 2.9% today (also split between employer and employee). Social Security taxes are limited to the first $132,900 in earnings for an individual. Medicare taxes do not have such a limit.

Overall, including state and local taxes, the US has consistently ranked among the lowest of all developed countries in terms of tax revenues, at approximately 25% of GDP, compared to the OECD average of approximately 35% of GDP and EU average of approximately 40% of GDP.

I would push for a Federal sales tax.

There are plenty of reasons for this, as well as some arguments against it.

(Way over simplifying: Texas & Florida (two of the top economies in the USA) don't have income tax, but d have sales tax and... they are two of the top economies in the USA.

Granted, neither has to pay for a defense budget.

One other issue is the governments tendency to spend too much, could lead to Congress to increase the sales tax rate over time.

So, to handle that last problem, I would add that the legislation should include a restriction that Congress cannot increase the Federal sales tax rate unless they the requirements that the Constitution lays our for repealing an Amendment plus passing a national referendum with a two-thirds majority.

etc...

No loop-holes... you want to buy stuff >>> you pay taxes >>> everyone pays taxes...

Some people argue this isn't fair to the poor. I don't totally agree, but perhaps it would be worth while to study that point and provide the poorest people with some sort of "rebate" system or Federal Tax exempt "ID card"....

etc..

Further cut loopholes and deductions - especially for corporations.
- but don't kill the small business

For a certain percentage of taxes paid, let the the tax payer decide where the money goes.
i.e.
10% to Infrastructure
3% to Defense
10% to Education
5% kicked back to My state for ....
etc

The unnecessary Trump tax cuts of 2017 needs to be eliminated by Congress, with a return all tax rates and code to what it was before then, as the cuts primarily benefitted corporations and the rich, which wasn’t needed. Additionally, deductions and loopholes that corporations have been utilizing prior to these cuts to drastically reduce their taxes should be eliminated as well. The increased revenue from these changes can fund health care reform before any determination of additional taxes are needed for its funding.


Capital gains and corporate profits should be taxed as income with the same rates individuals are taxed for wages, rather than the lower rates they currently are. The $11 million exemption from estate inheritance taxes should also be eliminated, and, again, tax all of it as income. The increased revenue from these changes can be then be used to help bring down the federal debt.


All these actions will also help improve income inequality and simplify the tax code.


Additionally, all income, including the above capital gains, corporate profits, and estate inheritance, needs to be taxed for Social Security rather than just the first $132,900 of wages. This, along with a gradual increase in the age of eligibility for Social Security benefits, will help keep Social Security economically viable.


A nationwide carbon sales tax on fossil fuels along with a cap and trade system of regulation on electric fossil fuel usage needs to be implemented to fight climate change. This money can then be used to fund alternative energy infrastructure and electric vehicle incentives, as well as fund, research, and build carbon capture technologies. Once we reach certain goals, such as cutting emissions in half by 2030, cap and trade can be phased out and carbon taxes can be increased.